Toronto Real Estate Market Trends – If you own real estate, you’re naturally hoping it appreciates or at least retains its value. On the other hand, if you don’t own property, you likely want prices to drop so you can enter the market. But the direction you or I want prices to go is actually irrelevant. What matters is the actions of the Bank of Canada, the government, and developers, which have a significant impact on real estate prices. Let’s dive into the factors influencing the market today.
1. The Bank of Canada’s Influence on Real Estate Prices
The Toronto real estate market is highly sensitive to interest rates, with a direct correlation between rate changes and market performance. When interest rates are low, the market tends to boom; when they are high, the market cools off. This has been evident over the past two years, where rate hikes have significantly impacted the market.
Recently, the Bank of Canada announced a rate cut in early June. Governor Tiff Macklem stated that “monetary policy no longer needs to be as restrictive” and hinted at more rate cuts in the near future. Canada has taken the lead among G7 countries in lowering rates, and it’s expected that other nations will follow suit. The Bank of Canada could potentially cut rates one or two more times this year and several more times next year.
However, it’s important to understand that changes in interest rates take time to filter through the market. It typically takes 12 to 18 months for the market to fully absorb and adapt to new rates. Therefore, while we may see a slight boost in the market now, the full effects of lower rates will only become apparent over time.
2. Government Policies and Their Impact on Housing
In a recent interview with The Globe and Mail, Prime Minister Justin Trudeau addressed the housing crisis in Canada. He acknowledged that the situation has become particularly acute, affecting young Canadians who find it increasingly difficult to enter the housing market.
Trudeau highlighted that a generation ago, young people with good jobs could save up for a few years and afford a down payment on a house. Today, however, many Millennials and Gen Zs view homeownership as unattainable, despite their hard work and multiple income streams. The math has changed, and so has the housing landscape.
The Prime Minister also pointed out that real estate investment has become a primary tool for Canadians to build wealth, contributing to higher prices. This raises a paradox: Should Canadian real estate be widely attainable, or should it remain a valuable asset for those who already own property? The reality is that housing is a zero-sum game. Current homeowners want prices to remain high, while those trying to enter the market want them to fall.
While the government aims to make housing more accessible, it also acknowledges the importance of maintaining the value of real estate as a key component of many Canadians’ retirement plans. The balancing act is challenging, as a declining housing market could negatively impact those relying on property value growth for their future security. Yet, for a stable society, it’s crucial to ensure more people can enter the market and build wealth through homeownership.
3. Developers’ Role in Shaping the Toronto Real Estate Market
Recently, I had lunch with a prominent developer, and our conversation provided some key insights into the current state of the Toronto real estate market. He mentioned that some properties are now selling for 20% below their original prices, largely due to sellers forfeiting their deposits. What’s more interesting is that these units are selling for less than today’s replacement cost, meaning it’s impossible to build similar units at these prices now. This offers a unique opportunity for savvy buyers who can capitalize on distressed sales.
However, the developer also pointed out that pre-construction sales have nearly come to a halt. For instance, in April this year, only 518 high-rise units were sold across the entire Greater Toronto Area (GTA), a number comparable to April 2020, when the COVID-19 pandemic was in full swing. This slowdown means that many construction projects may not proceed as planned due to insufficient sales.
Looking ahead, the developer shared a report predicting a significant reduction in condo completions by 2027. Many projects expected to complete in 2025 and beyond are likely to be canceled due to poor sales in the preceding years, leading to a severe supply shortage. This upcoming scarcity, combined with high immigration rates, could drive prices even higher in the long term.
4. What Does This Mean for Toronto Real Estate Market?
Given the current trends, if you own property in Toronto, it might be wise to hold onto it, especially as supply shortages could push prices up again in the future. On the other hand, if you’re looking to buy, now could be a good time to take advantage of distressed sales before the market potentially tightens.
The key takeaway is that while the market may seem unpredictable in the short term, understanding the broader economic forces at play can help you make informed decisions. Keep an eye on interest rates, government policies, and market supply, as these factors will continue to shape the future of Toronto’s real estate market.
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